For years, airfares in the days leading up to Diwali have risen sharply. Air travel in India typically sees a big spike in the run-up to Diwali and fares consequently rise in tandem. Diwali has also long been the rare occasion when the booking and pricing curves in India move hand in hand.
However, 2020 is different in many ways. Irrespective of the booking curve, there is a limit to how much the airfares can increase, stifling the ability of airlines to make money.
Different Festival
That is because air travel in India has been regulated since the restart of flights after the outbreak of the pandemic. Now there exists a lower and upper cap on airfares across routes.
Fare caps are in place until November 24. Airlines have a mandate to sell 40 percent of the seats at median fares.
The cap is not just on fares but also capacity, with airlines allowed only 60 percent of their fleet/flights to be deployed. Remember, the capacity limit was relaxed — initially, when the rules were formed, airlines were asked to operate at 33 percent capacity so as to maintain social distancing at airports. The problem is this capacity restrictions do not apply to airports, leading to a few of them operating at near normal levels in August.
Aviation minister Hardeep Singh Puri has hinted at increasing the capacity limit to 75 percent, but the industry is waiting for clarity. On October 19, there were 1,660 domestic departures, the highest in recent months, but just 53 percent of the daily departures in January 2020, before the impact of COVID19 was felt in Indian skies.
In terms of departures, airlines are fast approaching the 60 percent limit. The highest passenger numbers since restart of flights were recorded on October 18. At 180,838, the passenger numbers are still only 44 percent of the per day levels of January.
Diverse trend in passenger flow and capacity
While airlines have traded barbs in the past for capacity dumping and the country has seen traffic follow capacity, a chart plotted for the last few days of passengers and capacity does not show the same trend. The passengers who took flights initially were attracted by cheaper fares. That is not the case now.
Puri had expected the air traffic to be normal by Diwali. He later changed tack to say it will happen the end of the year. Global body IATA expects air traffic to be back to pre-COVID19 levels only by 2024.
Why is Diwali so important this time around?
Indian aviation sees two good quarters — April to June and October to December, with the other two seasons subdued because of the monsoon and exam season. Diwali is unique because of how traffic amplifies in a short period unlike the holiday season of May where the traffic peaks are scattered.
With the holiday months of April and May washed out, airlines were pinning their hopes on Diwali. Traditionally, Diwali is when people travel to their hometowns to reunite with their families. The traffic flows will be the same as below, from metro cities to Tier I and Tier II pre-Diwali and reverse for the return.
Without direct aid from the government, airlines have had a hard time so far. Except IndiGo, no other carrier has the cash balance to sail through these times. Without a sustained flow of passengers, airlines must brace for even tougher times.
It is unclear when the government will allow increase in flight count or do away with the fare caps. If the fare caps are gone, there is no guarantee that the fares will remain at sustainable levels. It could be a free for all with discounts and deals to shore up the load factor and revenues.
Ameya Joshi runs the aviation analysis website Network Thoughts.
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